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Debbie Siegel's Mortgage Minute
Tax Tips: Staying on the Good Side of the IRS
When wrapping up for 2006 and preparing your tax documents, be aware
that interest, closing costs, and points can be tax deductible
depending on the type of property (primary residence, second home, or
investment property) you are buying or refinancing.
Here's how to keep everything straight:
Points:
When you purchase a property as your primary residence, points are
100% tax deductible in the year you made the purchase.
* Next 37 17 investors only!
If you refinanced your primary residence and paid points, then you
have to amortize or spread out the points over the new loan term.
When you buy an investment property or second home, points are
deducted over the life of the loan as well, not 100% in the same year
of purchase.
Real estate taxes and mortgage interest:
Real estate taxes are fully deductible in the year you paid them no
matter what type of property is being considered.
Annual interest paid on your mortgage(s) (reported on Form 1098,
which you should receive from your bank by January 31, 2007) is 100%
deductible as well. However, depending on the type of property, you
may need to be careful how you report it. Investment properties are
reported on a different form than the one used to report interest and
points for primary and second homes.
Whether you prepare your taxes or your accountant does, remember to
look at your Settlement Statement if you recently closed on a
property in order to identify real estate taxes that won't show up
anywhere else, as well as pre-paid interest.
Have a question about what's tax deductible and what isn't? Don't
rely on "advice" from friends or colleagues. For information
regarding your specific question either visit the IRS Website at
http://www.irs.gov/
or call your accountant.
Got questions about real estate financing? Contact
Debbie@westchester-mortgage.com
or 617-965-1236. She'll consider them for
inclusion in a future column. Debbie Siegel is president of Westchester
Mortgage in Newton, Mass. She is licensed in several Northeastern states.
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